Oct. 2015 - Diversified We Stand, Divided We Fall

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ANALYTICS
54 |
TH E M R EP O RT
THE LATEST
Affordability Remains Unshaken
by Home Price Increases
Interest rates would have to rise to 6 percent to bring affordability
up to historically normal levels.
D
espite home price
increases over the last
three years, homes are
still affordable by histori
-
cal standards, according to the Ur-
ban Institute's Monthly Chartbook:
Housing Finance At A Glance.
The August 2015 edition of At
A Glance, the Urban Institute
Housing Finance Policy Center's
reference guide for mortgage and
housing market data, noted that
even if interest rates rose to 6
percent, affordability would be at
the long-term historical average.
The current median sales price
rests at $219,000 as of May 2015,
while the maximum affordable
price is $297,364. Meanwhile, the
maximum affordable price at a 6
percent interest rate is $247,421, the
report stated.
Affordability among the San
Francisco, California; San Jose,
California; and Los Angeles,
California metros all fall under
the 0.8 debt-to-income (DTI) ratio,
where one indicates an affordable
market with a smaller DTI ratio,
according to the Urban Institute.
In addition, Washington, D.C., and
Miami, Florida metros are also
ranked low on the affordability
scale with DTI ratios under 0.9.
On the other hand, the
Cleveland, Ohio metro's DTI ratio
is over 1.3, making this market
highly affordable. Cincinnati, Ohio;
Pittsburgh, Pennsylvania; Las
Vegas, Nevada; and Columbus,
Ohio metros wrap up the top five
most affordable metros with DTI
ratios all well above one.
The strong year-over-year
growth in house prices through
2013 has slightly slowed down
since 2014, according to the report
and other HPI data.
National home prices have risen
36.7 percent from their trough
but still must grow 8 percent to
reach pre-crisis peak levels. At
the MSA level, three of the top
15 MSAs have reached their peak
HPIs—Houston, Texas; Dallas,
Texas; and Denver, Colorado. Two
MSAs particularly hard hit by the
boom and bust—Phoenix, Arizona
and Riverside, California—would
need to rise 36 and 38 percent, re
-
spectively, to return to peak levels.
Earlier in August, CoreLogic's
June 2015 Home Price Index found
home prices were edging up once
again thanks to pent-up buyer
demand, affordability, consumer
confidence, and an improving
labor market. According to the
report, home prices, including
distressed sales, increased by 6.5
percent year-over-year in June.
"The current cycle of home
price appreciation is closing in on
its fourth year with no appar
-
ent end in sight," said Anand
Nallathanbi, president and CEO
of CoreLogic. "Pent up buying
demand and affordability together
with higher consumer confidence
buoyed by a more robust labor
market, are a potent mix fueling a
6.5 percent jump in home prices
through June with more increases
likely to come."
Housing Demand Lowers Amid Buyer
Disinterest, Price Limitations
Redfin predicts cooling demand entering the fall months.
A
s buyers reach their
price limits and show
less interest in homes,
housing demand
lowered for the fourth consecu-
tive month. According to Redfin's
Housing Demand Index, homebuy-
er activity fell 5 percentage points
from 113 in June to 108 in July.
"Redfin real estate agents report
that the market is rapidly cooling,
with buyers reaching their limit on
prices and showing less interest in
hot home listings," the report said.
In a hot market like Denver,
where half of new listings sell in
six days or fewer, Redfin agents
and their customers are witness
-
ing the slowdown first-hand.
"It feels like the market is at a
standstill," said Michelle Ackerman,
a Redfin agent. "Showings have
dropped off significantly."
In July 2013, homebuyer activity
reached 119, and 99 in July 2014,
Redfin reported. Still, homebuyer
demand was up 9 percent year-
over-year in July, leading Redfin's
Forecast Model to project that
in August, home prices across 15
major metro areas will rise 2.2
percent and sales will increase 2.6
percent year-over-year.
Redfin forecasted July home
prices and sales on July 23 us
-
ing demand data through mid-
July and housing metrics from 15
major metro areas.
In July, the median sales price
increased 4.6 percent from a year
earlier, compared to Redfin's July
23 forecast of 4.3 percent growth.
The Redfin sales forecast for July
was also on target, with sales up
14 percent year-over-year against
the forecast of 14.3 percent.
The August forecast predicted
prices will rise 2.2 percent and
sales will increase 4.6 percent
compared to this time last year. In
September, prices are expected to
increase 5.3 percent from last year
and sales to rise by 10 percent.
In comparison to the housing
market in September 2014, this
years' market looks very strong,
Redfin said. However, Redfin still
projected demand will continue
to decline into the fall months.
"The market is changing week
by week, and today's buyers are
more likely to walk away from
a home they feel is overpriced
than last month's buyers were,"
Ackerman said. "Sellers now have
to negotiate with buyers to make
a sale happen."